Speculative investment is an investment where the investor expects a high return with a significant risk of loss.
What Is a Speculative Investment?
Speculative investment is the act of investing in an asset that has a high risk and reward ratio. If you are willing to take risks because you are expecting that you will gain more than what you invest, then you are engaging in speculative investments.
Speculators generally seek to profit from market price fluctuations through rapid trading. Some speculators look for undervalued securities, while others exploit what they believe to be overvalued markets for short-term gains. Speculation can in some cases be considered a form of gambling because it does not necessarily involve the fundamental value of a security and often little research into a security’s background.
An example of speculative investment would be purchasing five shares of XYZ Company because you think that based on their current financial situation, XYZ Company will beat their earnings estimates next month and the stock price will rise as a result.
How Does Investment Differ From Speculative Investment?
Investing is putting your money into something that you know has value. Whether it is buying stocks or getting a property, you are making an investment for long-term gains by putting your trust in the value of that asset. You are investing because you believe that over time your investment will provide cash flow or appreciation, or both.
Speculating is something very different from investing. Speculation investments involve buying something with the hope that its price will go up without any regard to its underlying value. It is not enough to think that gold prices might go up; you have to know why will it go up and whether it is worth the risk.
Is Investing in Cryptocurrency a Speculative Investment?
Even since cryptocurrencies gained traction, the discussion about them being speculative investments or real investment opportunities is a hot topic.
Controversy has swirled around the topic. Cryptocurrencies have been praised for their potential to revolutionize the world of finance and criticized for their volatility, so it is important to understand what value they really hold.
The bottom line is that whether or not cryptocurrency is a speculative investment depends on what you buy. Let’s say you invest in a high-quality project with long-term potential, you can certainly call it a safe investment. On the other hand, investing in a project with no use case and hoping that someone would buy it from you at a higher rate is what we can call speculative investment.